Cheat Sheet Q&A - Part 1: Is the economy really improving or is the Trump bump over?
Today's entry: Brian, in your opinion is the economy really improving or was the surge in stocks and confidence just a "Trump bump" without any substance?
Bottom Line: Well, that's a potentially loaded question worth delving into... So we've, without a doubt, experienced tangible economic improvement that's related to the election of Donald Trump. As a reminder here are some the real data points that support the Trump bump narrative:
- Record stock market performance
- Highest large business confidence in 10 years
- Highest small business confidence in 12 years
- Best February job growth in 11 years
- Best two month start to a year for housing in 10 year's
- Consumer confidence at 16.5 year highs
- Rising inflation (sign of consumer demand rising)
Now, to the point of your question, is this sustainable to usher in sustained economic growth? My concern, especially with regard to the performance of the stock market, is that the fundamental improvement for the economy isn't on par with the performance of some of these data points. For example there are only two times historically in which the P\E ratio of the S&P 500 was higher than it is today. That means that significant profit improvement is priced in already. So what happens if hard policy doesn't pave the path for that to occur? When I boil down everything that potentially represents tangible economic improvement from the Trump administration to date - it really comes down to three indeterminate factors:
- The Inauguration Day executive order: "MINIMIZING THE ECONOMIC BURDEN OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT PENDING REPEAL"
This promises that the taxes and penalties for business and individuals in non-compliance will be mitigated (we saw that manifest itself by the IRS not mandating insurance proof to avoid paying the tax when filing taxes)
- The January 30th executive order: "REDUCING REGULATION AND CONTROLLING REGULATORY COSTS"
Which capped hard regulatory burden at zero - meaning that the cost of regulation for businesses can't rise under the Trump administration
- The executive action taken to begin to rebuild/increase spending on INS, the military and resume/restart a smattering of infrastructure projects (ie Keystone, Dakota Access pipelines)
I'll share the economic impact of these actions and what's next in part two...